Sean's Russia Blog

Russian Federal Law 83-FZ, or Austerity by Other Means

The protests against Vladimir Putin. The prosecution of the protests’ activists. The series of laws directly or indirectly aimed at the street opposition: upping fines, the branding of NGOs funded from abroad as “foreign agents,” the re-criminalization of libel, the restricting the internet, and the proposed law on volunteers. Occupy Abai. Pussy Riot’s detention and trial. All of these have received much attention in the Western press, and rightfully so. However, I have to agree with Katrina vanden Heuvel’s recent call that “perhaps it’s time for some reporting on the millions of working or unemployed Russians who will bear the brunt of economic policies hatched by the Putin government and supported by many of its opposition critics.” As she astutely notes,

In a case replete with ironies, here’s the final one: even as Putin reaps political benefit from the resentments of this other Russia, his economic and social policies are poised to hit its citizens hardest—and his most prominent critics in the opposition are on board as well. Last month ushered in a fairly dramatic increase in utility and transit costs. And austerity, Russia-style, is coming to other sectors as well: neoliberal “reforms” are on the way in education, housing and pensions. These changes will mean socio-economic disaster for already-suffering Russians, many in regions far-flung from Moscow. What is little reported in the West is that Putin’s own critics, those who’ve led many of the street protests in Moscow, also back these measures. These include elite critics like former Finance Minister Aleksei Kudrin, Boris Nemtsov and Ksenia Sobchak, once the Paris Hilton of Russia until she became its Pasionaria. Perhaps that should be no surprise: they’re not the ones about to get hurt.

There has been some question as to what vanden Heuvel means by “austerity.” And in regard to Russian macroeconomic policy, its overall Federal budgets, and general fiscal order, though there is some concern about the cost of Putin’s campaign promises, vanden Heuvel’s use of “austerity” might be a misnomer. But the devil is in the details, as they say. And the neoliberal reform she references without elaboration is the law “On Amendments to Individual Statutes of the Russian Federation in Connection with Improving the Legal Status of State (Municipal) Institutions” passed on May 8, 2010 and brought into force on July 1, 2012. This 200 plus page behemoth, which has local governments still scrambling to implement, effectively splits Russia’s public-sector institutions into two groups: “public institutions” and “new public-sector institutions.” The former includes national defense and security organs and larger medical institutions like psychiatry hospitals. The budget allocation of these organizations will remain the same. The latter, however, which includes the overwhelming majority of institutions, about 330,000, of health care, education, sciences and culture will be partially decoupled from the Federal budget and run according to market principles. The ideas behind the law are steeped in neoliberal assumptions that I thought only existed in the US and Britain. Namely, the law’s authors believe that Russia’s social institutions are bloated, inefficient, and moribund (okay, not much of an argument there) and therefore have no incentive to optimize and improve the quality of services to citizens. In the words of N. Mukhetninova, a critic of the law, the authors’ “intention is to transform the authorities’ existing public-sector network, which is inefficient and costly, into a highly efficient one (aimed at meeting the highest standards for the quality of the services provided) that is relatively cheap for the government.” The broader logic of 83-FZ is to realize Putin’s desire for a balance federal budget with a move so often utilized in the US: liberalizing public services like health care and education to performance as a means of “accountability” and cost saving.*

What does 83-FZ do? On the surface, 83-FZ has all the usual positive liberal claptrap. It speaks of institutional autonomy, budgetary transparency, and efficiency. But the “main intrigue” as Mukhetninova explains, is that the law puts these so-called “new public-sector institutions” at the whim of the market. Their budgets will no longer be calculated on previous spending, but will be subsidies based on fulfilling state assignments, which cannot be refused, but the subsidy for which can arbitrarily altered by municipal governments. The law doesn’t provide any standards for determining the norms or financial payment for fulfilled work. Moreover, by making these institutions “autonomous,” the state is relieved of any responsibility for their economic viability. This creates, in Mukhetninova’s words, “a fundamentally new stage of commercialization of the social sphere and the government’s dumping of its responsibility for the functioning of the social sphere on the citizens themselves.” Is this not austerity by otherwise neoliberal means?

Indeed, as many health care professionals, labor unions, educators, and cultural workers believe, 83-FZ will eventually lead to the privatization of Russia’s social services. Mekhetninova implies this with her claim that transforming the funding of public-sector institutions to subsidies for work rendered will ultimately result in “bankruptcy thereby causing a redistribution of ownership in the social sphere.” Basically, the fear is that the already existing virtual privatization of public-sector institutions by their senior management will allow the latter to become formal owners. This is an effective means to legalize public-sector bureaucrats’ longstanding practice of pilfering state institutions all the while transferring more of the costs for services to Russia’s citizens. The law already allows for a measure of this since its gives administrators the power to engage in income generating activity, i.e. to charge service fees, dispose of movable property (though there are limitations for valuable assets), and declare unused budget monies as income to be used in the following calendar year. All sounds good–public-sector institutions are being given the means to better allocate resources. However, all I can see is another means for bureaucrats to move public funds and property into their own pockets.

Granted, many of the fears espoused last fall about the abolition of free education did not come to fruition. However, the law only went into effect on July 1. So for the ultimate results of 83-FZ, positive or negative, remains to be see. Given the disaster of welfare liberalization in other contexts, I, for one, am not optimistic.

So where is the Russian opposition on all this? There are many groups that have been and are continuing to protest 83-FZ, but many of them are labor unions and small leftists organizations that often fly under journalists’ radar. There was a lot of opposition to its passage in 2010, but to no avail. But wariness of the law was visible even among the Party of Power. Barely half of the Federal Council voted for it. In contrast, the “stars” of the Russian opposition have been mostly mute. Thus, while vanden Heuvel’s assertion of austerity, Russian style can be debated (I happen to agree with her), there’s one thing’s she unfortunately spot on about: When it comes to social and economic matters there is more congruence than divergence between Putin and his opponents. After all, why should Ksenia Sobchak et al care? The answer to that question, I’m afraid, is that they don’t.

*It’s important to note that 83-FZ is connected to several other policies. Mekhetninova: “In connection with the latter circumstance, we cannot fail to point out the organic relationship between FZ 83 and another recent legal document produced by federal executive authorities: the Ministry of Finance Program for Increasing the Efficiency of Spending Budget Funds in the Period up to 2012, approved by the RF government on May 20, 2010. Section 8 of the program is aimed at “optimizing” the public-sector network, developing it with funds from extra-budgetary sources, and expanding competitive relations, further implementing market principles in the social sphere, in all of its components.” For a survey of welfare reform liberalization under Putin, see Linda Cook, Postcommunist Welfare States: Reform Politics in Russia and Eastern Europe, Cornell University Press, 2007, Chapter 4.